Taxation of Chargeable Gains Act 1992 section 54

Calculation of indexation allowance

Section 54 sets out how to calculate the indexation allowance, which adjusts a chargeable gain for the effects of inflation by reference to changes in the Retail Prices Index up to December 2017.

• The indexation allowance is the total of the indexed rise for each item of relevant allowable expenditure, calculated using the formula (RD − RI) ÷ RI, where RD is the RPI for December 2017 and RI is the RPI for March 1982 or the month the expenditure was incurred, whichever is later.
• No indexation allowance applies to expenditure incurred on or after 1 January 2018, to relevant securities disposed of within 10 days of acquisition, or where the RPI at December 2017 is equal to or lower than the RPI at the time the expenditure was incurred.
• The indexation factor must be rounded to three decimal places where the formula produces a longer figure.
• For timing purposes, acquisition costs are treated as incurred when the asset was acquired or provided, and enhancement or other additional expenditure is treated as incurred when it became due and payable.